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Survey of bankers shows robust rural economy despite energy prices

Over the next six months, bankers foresee a more robust rural economy, but warn that higher oil prices are having a big impact on farm operations and profitability, according to this month's Mainstreet Economy survey.

Each month, community bank presidents and CEOs in Colorado, Iowa, Kansas, Missouri, South Dakota and Wyoming are surveyed about current economic conditions in their area, and their six-month outlook. The survey was created by Creighton University Economist Ernie Goss and Bill McQuillan, CEO of National Bank in Greeley, Nebraska.

Goss says the May survey shows the overall economic index increased to its highest level this year.

Bankers reported that farm land prices continue to grow. However, Craig Brewster, president of Butte State Bank in Butte, Nebraska, said, "In our area we have two different land values. The dryland and pasture in Boyd County, Nebraska, has maintained about the same value. The irrigated land in Holt County, Nebraska, has seen a decrease in land values. The decrease in irrigated land values in Holt County is due to energy cost." Also, drought conditions are having a negative impact on farm land prices in some areas.

Farm equipment sales are seeing a bit of a decline, the survey shows, as higher energy prices make farmers less willing to buy new farm equipment. More than 30% of bankers reported that higher energy prices were having a significant impact on farm operations. "Farmers are switching to all-electric irrigation systems to minimize diesel and natural gas inputs," said John Schmaderer, president of Tri-County Bank in Stuart, Nebraska.

Hiring in the rural areas strengthened dramatically from April's survey. Job growth was much stronger in Wyoming and Colorado, where higher energy prices are positively affecting growth. Bankers in Kansas and Missouri reported downturns in hiring while CEOs in Nebraska, South Dakota and Iowa detailed solid upturns in hiring.

Confidence abounds in rural areas that have ties to energy production, especially ethanol. "We have some potential good job growth on the horizon. We have a biodiesel plant that will become operational in March 2007," said Dale Torpley, president of Federation Bank in Washington, Iowa.

Steven Lane, CEO of Security Savings Bank in Farnhamville, Iowa, added, "The building of two ethanol plants in the area has stimulated new jobs at a better pay scale, which seems to give everyone a brighter attitude."

Over the next six months, bankers foresee a more robust rural economy, but warn that higher oil prices are having a big impact on farm operations and profitability, according to this month's Mainstreet Economy survey.